InvenTrust Properties Corp. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. InvenTrust is a REIT focused on multi-tenant, primarily grocery-anchored retail centers in Sun Belt markets. Unless otherwise noted, dollar amounts below are in millions.
Financial and operating results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total income | $41.6 | $57.3 | $94.1 | $114.1 |
| Net income (loss) | $(9.6) | $(5.7) | $(13.1) | $(15.2) |
| Net income (loss) from continuing operations | $(9.6) | $6.3 | $(13.1) | $10.3 |
| Cash provided by operating activities | Not presented quarterly | $40.3 | $53.0 | |
| FFO per diluted share | $0.02 | $0.04 | $0.06 | $0.08 |
| AFFO per diluted share | $0.03 | $0.04 | $0.07 | $0.08 |
Q2 lease income, net, was $40.7 million versus $55.6 million; it included a $6.0 million provision for estimated credit losses. Same-property modified NOI, a non-GAAP measure, fell 18.1% to $25.4 million in Q2 and 7.4% to $54.1 million for the first half. Distributions declared and paid were $0.02 per share in Q2 and $0.04 per share for the first half.
At June 30, cash and cash equivalents were $309.3 million, restricted cash was $1.4 million, and debt, net, was $655.3 million. Total assets were $2.53 billion and stockholders’ equity was $1.76 billion. The company had drawn $150 million on its $350 million revolving facility, leaving $200 million of capacity. It reported compliance with all debt covenants.
For the first half, investing activities used $37.4 million and financing activities provided $47.1 million. The company acquired two properties for a gross $33.2 million and sold one property for $5.5 million. It repaid $67.3 million of mortgage debt and incurred $2.5 million of debt-extinguishment losses, mainly prepayment penalties.
Material changes versus the prior comparable period
- Q2 total income declined $15.7 million year over year. Management attributed the same-property lease-income decline primarily to higher estimated credit losses, lower tax recoveries, and COVID-related rent and lease-accounting effects.
- Q2 continuing operations shifted from $6.3 million of income to a $9.6 million loss. For the six-month comparison, 2020 continuing operations were also a loss, while 2019 included income from continuing operations but substantial discontinued-operation losses tied to a settlement of former student-housing indemnity claims.
- First-half operating cash flow decreased $12.6 million year over year, primarily due to reduced lease income, partially offset by lower operating expenses.
- First-half cash used in investing improved from $124.0 million to $37.4 million, chiefly reflecting lower property acquisitions and the absence of the 2019 $30 million indemnification payment.
- Portfolio size was 65 properties and 10.8 million square feet, compared with 71 properties and 12.1 million square feet a year earlier. Economic occupancy was 95.2%, up from 94.3%; ABR per square foot was $18.47, up from $17.82.
Outlook, risks, and unusual items
- COVID-19 and rent collection: The filing says pandemic effects remained uncertain and could materially affect tenants, collections, occupancy, property values, and cash flows. For Q2 billings across the portfolio, including the company’s proportionate joint-venture share, 75.4% had been collected by June 30; 3.4% was under deferral plans, 9.7% was estimated as credit loss, and 11.5% remained receivable. By July 31, approximately 84.0% of July billings had been collected. As of that date, all properties were open, while approximately 97.7% of occupied GLA was permitted to operate in some capacity.
- By July 31, tenants representing approximately 51.5% of GLA had requested assistance. Management was assessing requests individually and did not expect all requests to result in amendments. The company adopted accounting relief for certain COVID-related concessions; deferrals generally preserve recognition of rent during the deferral period, while abatements are treated as negative variable rent.
- Liquidity and capital allocation: Management said it did not then expect COVID-19 to impair short-term liquidity, but future liquidity depends on rent collection, business disruption, costs, and capital-market access. The board will continue reviewing the distribution rate. The share repurchase and distribution reinvestment plans were suspended effective July 11, 2020.
- Strategy: The company said pandemic uncertainty delayed its process to explore a potential strategic transaction intended to enhance shareholder value and provide liquidity. No transaction or timing is assured. The filing provides no specific earnings or operating guidance.
- Notable charges and benefits: The company recorded a $9.0 million impairment on a property later sold in May, a $2.5 million loss on debt extinguishment, and $1.2 million of anticipated tax benefits related to CARES Act NOL carrybacks. Derivative mark-to-market losses contributed to a $29.0 million comprehensive loss for the first half.
- Other risks: Risks include tenant bankruptcies and closures, lease renewals and re-leasing, e-commerce competition, refinancing and variable interest rates, and the transition away from LIBOR. Management stated it believed the LIBOR transition provisions would not materially affect the financial statements. Management did not expect pending legal matters to have a material adverse effect based on information then available.
Important facts for investors to verify
- Subsequent rent collections, tenant deferral terms, credit-loss estimates, and whether deferred rent is ultimately recovered.
- The continuing effect of COVID-19 on same-property NOI, occupancy, tenant bankruptcies, and property valuations.
- Availability of the revolving-credit capacity, covenant compliance, debt maturities, and refinancing terms.
- Whether the board changes distributions and whether the suspended repurchase and reinvestment plans resume.
- Any update to the delayed strategic-transaction process, including its terms, timing, and potential shareholder liquidity.
- The sustainability and comparability of FFO and AFFO, which are non-GAAP measures and are not substitutes for operating cash flow or liquidity.